Ted Martynov – CEO and Founder of Carmachain (*)
Gaston Bilder and Ted Martynov discussed their experiences in navigating the FinTech market in Africa, particularly in the context of defunct startup CarmaChain. They shared challenges such as managing data and building a revenue stream, and highlighted the importance of adapting to changing markets. They also touched on current state of FinTech in Africa, focusing on payment mechanisms, remittances, and the need for alternative credit scoring methods based on mobile data. Additionally, Gaston and Ted discussed the difficulties of securing funding for a startup, with Ted emphasizing the importance of understanding funding needs.
Sharing Lessons learned
Gaston Bilder: What opportunities do you see today in the credit scoring for the unbanked market that CarmaChain was attacking? And how would you do it differently, if anything, based on your experience?
Ted Martynov: Well, crucially, I think our biggest mistake was that Carmachain was in pursuit of this big chunk of data, rather than trying to approach some easier layers of information. This is what actually was being done by a few other companies. On our end, maybe we were a bit too ambitious on getting into building some unique differentiation (“moat”) between what we did and what everybody else was about.
Gaston Bilder: Because you managed to get like, 80 million data points on Nigerian customers, not some long time ago, right?
Ted Martynov: Yes. And you know that was actually the tricky thing, because if you were asking me at the very beginning, okay, if I give you 80 million data points: would it be enough? I would say: of course, that’s more than enough! It’s bigger than everybody has. But in fact, it appeared that 80 million data points was not enough, and that the credit companies, which were our basic consumer, couldn’t improve their credit scoring systems just based on this information.
Gaston Bilder: How would you attack this market now, if you had to go again, from scratch?
Ted Martynov: Well, I would either go for looking for some more available data layers to build some services around, exactly in the manner as that was being done by our competitors. Or, I would be more focused in understanding our clients; if I know that I need to collect more than 80 million data points, I would be much more careful estimating, how much time and burn we need to get to this point.
Gaston Bilder: Would you also pivot completely to become a KYC provider, and identity verification supplier; i.e. making revenues out of KYC and then, going for the credit scoring market?
Ted Martynov: That’s what I said, right? That would be my first step. So if it is easier, I would go for getting into layers of information that could help to build an initial revenue stream. That would be my choice; number one, for sure.
Gaston Bilder: have you seen any changes in the credit bureau market?
Ted Martynov: I’m not really deep into the industry since I ended up in Ukraine. But what I see through the social networks or some news that I’m still reading, I don’t see there are many changes. I see the same players, and I don’t really see any new services, which is a bit surprising for me.
Gaston Bilder: from my point of view as an angel investor, CarmaChain underwent through a series of pivots while you were seeking market fit. So do you have any views on how you can accelerate this discovery period to adapt to changing market conditions?
Ted Martynov: Well, if you’re talking about pivoting, I would count really only one in the very end, when we tried to tap into the consumer lending infrastructure: on application aggregation. Initially, we were doing more like any type of credit risk aggregation. We were talking to farming communities and simultaneously doing consumer credit scoring.
Speaking generally, I would say it’s a kind of gamble, because we still really don’t understand if even all the required consumer credit information can be realistically compiled. Is there any way to build a strong credit score based on this information? If this information is enough, I would still prefer to deploy the latest stage tactics that CarmaChain used, which proved to be right. Approaching the bigger organizations, assuming that we can accumulate a bigger amount of consumer data than anybody else, because for such clients the volume and depth of information is a crucial thing. Alternatively, a competitive advantage is having all data about a smaller community, which you get to understand better. It’s a kind of gravy sauce, you know. It’s good to have, but it’s not good enough only to have it. You don’t make margins, if you only have this data.
Gaston Bilder: So it’s really kind of being selective on who you approach as your client and going for the largest one possible; really trying to set the standard … attract the largest clients, and then, ensuring that the small clients will fall in?
Ted Martynov: Yes, if we could have had fully integrated the data of [redacted], which we were on the way of doing, but it was taking a very long time period. You remember it right? We signed an agreement with them. They kept making new and new demands; how their data should be processed, and all such stuff. We spent maybe a year in trying to adopt their data.
Current Fintech Market in Africa
Gaston Bilder: most of the money I see nowadays flowing into startups on FinTech in Africa are payment mechanisms or even remittances from abroad, but there’s nothing similar to what you were trying to create. Do you have any thoughts about future FinTechs in Africa?
Ted Martynov: I think payment is the thing there. The financing context has experienced a big change. You see, we were talking about lending to the developing countries based on the then apparent excessive liquidity of the overall financial system, the world financing system. We both know that access to fundraising was way easier in 2020/2021 than it is today.
I believe that the financing industry has become more constricted than before, particularly in countries like Nigeria and its surroundings. Perhaps it’s not as large a sector as they would like. Thus, payment is a very viable business line, especially considering there are still many gaps in payment opportunities in developing countries.
However, the interesting part is, if you were to ask any payment company about their profitability strategies, they would likely mention lending. Similarly, a lending company might express interest in starting payment services. Essentially, both parts of this puzzle are interdependent. Lending offers high-margin products, while payment provides a low-risk baseline for commission services.
For instance, the team that built a neo bank in the Philippines was very clear from the start that both parts needed to coexist. Solely focusing on payments doesn’t generate enough commission, and the risks are too high and liquidity access too low if you only focus on lending. So, it’s a delicate balance.
Global Fintech opportunities
Gaston Bilder: Are you aware about any part of the world that would you say it’s more promising?
Ted Martynov: From what I understand, Asia continues to be a significant player in the financial services sector. However, there may have been some changes in the situation that I’m not fully aware of. I’ve heard from a few colleagues in Singapore that the industry there has experienced some downturns. There’s a possibility that Central Asia could emerge as a new hub.
Being based in Ukraine, I’ve become more sensitive to the global turbulence, which seems to be at an all-time high. This instability is particularly noticeable in sectors that rely heavily on trust, such as financial services. As a result, these industries may not be as appealing as they were four or five years ago.
Gaston Bilder: How do you feel in terms of going back to the very original idea, which was what I was really attracted to as an impact investor, which is doing peer to peer credit scoring, and allowing each person to own their credit information via a token?
Ted Martynov: Definitely, there is an opportunity, if I were in the shoes of an enterprise, to start up something like that, first of all, I do what I said, right, like building some products around KYC (**) … I would definitely build a product based on mobile data (***).
The transition from basic phones to smartphones is becoming increasingly common; as more individuals acquire smartphones, this leads to an accumulation of data.
Gaston Bilder: So you’re saying alternative credit scoring based on your mobile?
Ted Martynov: Yes, exactly. And then you need to play a long game on getting to work with these big players who have a lot of data, like telcos, mobile money; all these financial institutions that do payments; it could take a few years.
Gaston Bilder: Apple Pay or Google could really monetize this data? They already have your credit transactions and all the info on your phone, right?
Ted Martynov: Apple and Android, they can get way more data points from your phone. They leverage their monopoly on the access to your information. If you extract information by a third-party application, you will get much fewer data points. You see, it will definitely not be enough for a strong credit score.
Gaston Bilder: So, you’re saying that as a third party, you can try, but the ones in control are in the end Apple and Google. They can prevent you from having access to all the data points that you may need by changing the OS settings. So, is it still worth doing, or is it just an opportunity for Apple and Google, to dominate this market at some point?
Ted Martynov: I think this data is good to have, but it’s not enough to build a credit score based only on its creation. It can provide you some sort of variety if you can get some of these data points, but it works only in combination. You still need to go and build this 360-degree data mapping of everything that is going on around to build the real credit score. However, I do agree that possibly Google and Apple could build it based on standalone data from your phone.
Gaston Bilder: Would you agree that the approach should be more focused on predictive behavior, e.g., using AI to analyze the information already available, and saying, “This person is likely to have a high credit score”? While it might not be perfect, could this method at least sort individuals into different credit profiles and identify who poses a higher credit risk?
Ted Martynov: Yeah, that’s another thing that they have an advantage on. Potentially, right? They can extract your data nearly in real-time, and they could see if your conditions are deteriorating, for instance. As long as they can track what you’re doing via your phone. Like your phone knows everything about you.
Know yourself
Gaston Bilder: Do you have any advice from your experience for entrepreneurs, in general?
Ted Martynov: From my standpoint, I would advise entrepreneurs to have a sober understanding of the funding they can raise for their venture. For instance, we started CarmaChain on an extremely innovative path with zero presence, and we were literally pioneers. We needed quite a lot of time and effort to achieve practical results – it took us a few years. If you’re a pioneer and you’re going down such an ambitious path, and you don’t have the name or confidence that you can raise enough money, it’s better to step back and find something closer to you, something that is really achievable.
Gaston Bilder: I have a different view on that. I think if you want to get money, you should go where the money is. You try to address the largest possible potential market, and that’s what you’re selling. You’re not going for a very big, huge opportunity that’s going to be money-making maybe in the future, but rather for a market that is already out there. You identify the problem, and you say, “Okay, this is the big size of the opportunity that we have.” And you target the largest possible addressable market. If you’re going to spend your time, you go for the biggest one that you can capture. Say, “Okay, this will make our chances of getting money more likely.”
Ted Martynov: Well, it’s a yes and no situation. If you see the money that could be thrown into this problem and you can raise it, I would say yes. But if you don’t have a profile of a person that could raise such an amount of money, and you should be very clear about it, if you are a no-name, if you don’t have a background, you’re likely to get very little funding. So you could rely only on this thing. For example, SpaceX could have been built by maybe 100 people all across the globe, right? But it was built by Elon Musk. The reason there’s a vast difference in why it was built by Elon Musk is because he could pour billions of dollars into this problem. That’s the thing that you should keep in mind. You could be ambitious. You should be ambitious. You should hit the big problem. But you should be very clear about how much money you can raise so you can invest on your own.
Now, I’m actually more prone to startups where I want to be clear that I have enough personal funds to achieve to the initial traction.
Based on current market conditions, it seems that the investment landscape is changing. I’ve noticed that many newcomers are entering the field with compelling stories, but the market isn’t quite ready for them yet. This might be particularly true for markets like Ukraine, where the mentality is shifting.
It’s crucial to prove the worthiness of your idea. You need to build initial traction, and if you can demonstrate its potential, you could attract significant investment. However, proving this requires substantial effort. You either need to build it yourself or have sufficient funds to sustain long enough in the market.
If you don’t have a profile of a person that could raise such an amount of money, and you should be very clear about it, if you are a no-name, if you don’t have a background, you’re likely to get very little funding – Ted Martynov
(*) I was an investor in Carmachain – check my portfolio
(**) I am an investor in SourceID
(***) I am an investor in Baubap